Tan Kin Lian's Blog: High commission and profits

Friday, October 03, 2008

High commission and profits

View posted in my blog

To all the victims.
Have you ever wondered why the RMs or salesmen at the banks or the insurance agents are pushing hard on products?

At the banks product sale means high commission from the products as profit to the company and to pay the RMs' high salary.

What about fixed deposit?
The bank got to pay interest to the customers.

Why push products?
If need analysis is used they may not be able to sell anyhting because the products may not be suitable because of risk, the financial circumstances of the clients, their needs. Products pushing ignores all these perimeters.

At Insurance companies.
Pushing expensive and high commission products means high annual premium income(API) to the company. API is used as production figure for ranking and market share and good profit for the company.

Why insurance agents push products?
No need to look into the needs of the client.If they do they may NOT be able to sell a high commission product. They cannot justify.
Without the need analysis any product can do and normally the product is whole life with high commission.

What does it mean to the agents.
High earning and can qualify for mdrt. cot or tot.
What does it mean to the customers?
Wrong product, insufficient coverage ; allocate too much money in this area at the expense of other needs, ie other needs suffer.

What does it tell us?
Products pushing is bad and shortchanges the customers.
Mis-selling, misrepresentation and conflict of interest and other other unethical practices can arise.
Bad and rotten products need a lot of pushing, right? They need greedy and unscrupulous salespeople to use unethical means
to do for the company with promise of high rewards.

Do you hard push a good product?
The current debacle is due to this.

To MAS
Eradicate selling for financial products. Stop bad products to be sold in the market.

The Concerned Singaporean

3 comments:

Anonymous said...: What is ur definition of a "bad product"? Is it bad if it defaults, like High Notes 5, or minibonds?

If Lehman Bros did not file for bankruptcy, if all reference entities or issuers do not default during the course of the tenure of the plans, everyone is happy, customers get back returns plus principal, bank makes money too.

Does that mean, then, that such structured products are good?

No one hoped for credit events to happen.

Hope people can put things into perspective.; October 04, 2008 5:21 PM
Tan Kin Lian said...: A bad product has high charges and gives poor value to the investor.

Equity and bonds are good products because they are fair to the investor. The investor pays a small brokerage (say 0.3%) and receives a fair return, according to the level of risk.

Most structured products have high charges to benefit the issuer (or arranger) and the distributor, and leave a poor return to the investor, compared to the level of risk.

If the product has a 10% chance of losing the capital, it should give a return of 10% (for the risk) plus say 3% for the risk free return, i.e. a total of 13%. If the actual return to the investor is only 5% (because 8% is taken away by the issuer and distributor), it becomes a bad product.; October 04, 2008 5:49 PM
Valeo said...: I bought 2 ILPs for my children aged 3 & 6 from an Insurer, with a low coverage of $10k per ILP.

Till date, I've paid $17.6K. The sharp down turn prompted my re-assessment as the policies charges a 30% surrender fee.

With the current value of $10K, my take back is a miserable $7K.

I've decided to give it up as I doubt, even if the future return is a hefty 30%, I would have nothing to gain.

Anyone shares my sentiment ?; October 09, 2008 10:27 AM